Monday 11/08/99

Closing Market Numbers

Today's Market Movers:

UPS

Online retailer Amazon.com (Nasdaq: AMZN) rose $13 1/16 to $78 after pre-announcing not earnings, but a press conference scheduled for tomorrow at 9:00 a.m. EST. At the conference, Amazon will make "a significant announcement regarding additions to its product line that will impact the competitive landscape of online shopping." Speculation that Amazon will acquire software retailer Beyond.com(Nasdaq: BYND) drove Beyond's share price up $2 7/16 to $11 1/8.

Digital media and Internet operating system developer Be Inc.(Nasdaq: BEOS) buzzed $2 11/16 higher to $6 1/8 after announcing that it is working with Sun Microsystems(Nasdaq: SUNW) to incorporate Sun's Java2 and PersonalJava technologies into the BeOS operating system.

Lincolnton, North Carolina-based bank holding company Carolina First BancShares(Nasdaq: CFBI) deposited a $9 gain to $35 in its shareholders' pockets after agreeing to merge with First Charter Corp.(Nasdaq: FCTR). The deal values Carolina First at $260 million, or $42.50 per share in stock.

DOWNS

Internet service provider FlashNet Communications(Nasdaq: FLAS) was zapped for a $1 9/16 loss to $8 7/16 after agreeing to be acquired by fellow ISP Prodigy Communications(Nasdaq: PRGY) for about $124 million in stock. Prodigy also dropped, $2 1/8 to $22 5/8, on the news.

Credit card lender Providian Financial Corp. (NYSE: PVN) was cut $26 1/4 to $89 1/4 after saying it has received a request for information from the Connecticut Attorney General's office in connection with a civil investigation into the company's credit card issuance and billing practices. Providian said it welcomed the inquiry and is prepared to defend its practices. In sympathy, fellow credit card lender Metris(NYSE: MXT) lost $2 15/16 to $31 7/8 and Capital One (NYSE: COF) fell $3 3/16 to $49 15/16.

Online financial news and information provider TheStreet.com(Nasdaq: TSCM) was detoured for a $1 15/16 loss to $14 1/2 after Hambrecht & Quist cut its rating on the firm to "market perform" from "buy," citing "near-term pricing pressure." H&Q was an underwriter of the company's May initial public offering.

Electronics design and manufacturing services firm Nam Tai Electronics(Nasdaq: NTAI) tumbled $4 3/8 to $14 5/8 after posting Q3 EPS of $0.35, up from $0.26 a year ago but short of the $0.46 expected by the sole analyst surveyed by Zacks. The company said production difficulties and an industrywide components shortage caused gross margin to decline to 15% during the quarter, compared to 23% a year ago and 20% last quarter.

Today's Top Stories:

Software giant Microsoft(Nasdaq: MSFT) saw its shares dip a few percentage points this morning after U.S. District Judge Thomas Penfield Jackson issued his "findings of fact" in the government's ongoing antitrust case against the Seattle wealth-creation machine. Calling Judge Jackson's findings a "legal brief" would be an oxymoron, but interested readers with enough spare time on their hands to slog through the legalese will find a link to the findings at the bottom of this page.

For the most part, the findings suggest that Judge Jackson's legal nose is pointed toward the conclusion that Microsoft has acted in an anti-competitive (read: illegal) nature in the PC operating systems space. While laying out the facts, Jackson does not come right out and say "Microsoft = Big, Mean, Illegal Monopoly." But the parameters of the equation appear to be firmly established in his mind, considering the judge managed to use the term "monopoly power" in reference to Microsoft more than two dozen times throughout his findings of fact.

Calling Microsoft a monopoly is a little like calling Mike Tyson a stupid bully -- everybody knows the truth, but nobody feels the need to state the obvious, especially in a face-to-face confrontation. More importantly, the statement has lost a great deal of its relevancy as the trial has dragged on and scores of pundits have talked the issue to death. At this point, the Microsoft monopoly soap box is so over-used and decrepit that the only further opinion-spouters it could possibly support would be Casper the Friendly Ghost or the near-weightless Ally McBeal. (No strangers to the soapbox ourselves, links to various Foolish opinions on the Microsoft case can also be found at the bottom of this page.)

The question of whether Microsoft acted illegally and abused its monopoly power will be addressed in Judge Jackson's ultimate decision on the case, which itself is expected to monopolize the newstands at some point before the end of the year. The ruling, not the facts of the case, appear to be what investors care about the most at present.

Microsoft investors struggling with the issue of how to interpret this weekend's news can take strange comfort in the general reaction of the Wall Street analyst community, which amounted to a big, collective yawn this morning. Most sell-siders reiterated positive ratings on Microsoft, with only Volpe, Brown Whelan taking a stand and downgrading the company. Of course, the downgrade was only from "strong buy" to "buy," which hardly qualifies as a gutsy call.

For investors, the "invest-ability" issue is the only issue that matters today, although it garners the least amount of attention in the hype-obsessed -- rather than return-obsessed -- media. Judge Jackson has given investors a slug of incremental news to digest, but he has done very little to alter the overall Microsoft investing thesis. The company's financial position has not changed, its market share is as dominant as ever, and its competitive business advantages have not been taken behind the woodshed and whupped. Amid all of the noise from this weekend, a fellow Fool's advice on the issue of Microsoft from 1997 has retained the most relevancy: "Investors are cautioned not to make decisions based on this one event."

Online streaming media company RealNetworks Inc.(Nasdaq: RNWK) today announced the launch of its "Real.com Network," which the company wants to develop into a hub for Internet audio and video programming. Shares of the company's stock rose nearly 5% in morning trading.

Announced in conjunction with the beta release of a new version of the company's 85 million-user RealPlayer, Real.com's offerings revolve around the Take5 programming service -- essentially a plug-in for RealPlayer featuring news and entertainment headlines, music, comedy, and original entertainment -- and the Real.com Guide aggregator site for streaming media content.

What makes RealNetworks work is the company's sizable array of broadcast and Internet media partners who provide the content needed to convince consumers that visiting the site and downloading the software -- generally free, although there are premium options -- is worth their time. The company has been able to ingratiate itself with content providers in part because it doesn't compete with them, concentrating primarily on being a vertical provider of streaming media rather than taking the news and information giants on directly.

And today's announcement was piggybacked by a handful of releases signaling a wide variety of initiatives, from new advertising deals to content arrangements. (For a running tally of RealNetworks-related news, click here.)

This comes on the heels of the company's late-October announcement of third-quarter results that humbled its own year-ago performance: Revenues rose 86% as advertising revenue skyrocketed, gross profits more than doubled, and operating losses narrowed. On the balance sheet, RealNetworks' cash, cash equivalents, and short-term investments line item was at $326.8 million, up about $237 million since the end of 1998.

Much of the enthusiasm for today's move probably has to do with the potential for RealNetworks to really boost its advertising revenue through the Real.com Network.

Though advertising represented only 8.5% of the company's revenues through the first nine months of 1999 -- software license fees accounting for more than 71% and service revenues making up the balance -- it has been RealNetworks' fastest-growing segment by far. Advertising sales are up more than 260% this year, compared with about 87% and 75% for software and service revenues, respectively. Advertising gross margins, at about 76%, are comparable with service margins, and though they trail software license levels, they are nevertheless impressive.

Investors looking for RealNetworks to grow and diversify its revenue streams have already seen encouraging signs from the company this year, and today's news suggests more of the same is on the way.

RealNetworks' corporate website is here, with Real.com devoted entirely to its multimedia offerings.

More of Today's Best:

Peapod: Not Easy Being Green
By
Dave Marino-Nachison (TMF Braden)
-- For most of 1999, investors have been behind the Peapod (Nasdaq: PPOD) story despite increasing losses and cash flow problems at the online grocer. The shares have generally risen over the first 10 months of this year. Things have gone sour over the last several trading sessions, however, on concerns about the company's cashflow and ability to fund its operations heading into 2000. Today, Peapod moved to allay investor worries by announcing that it has $15 million in cash and marketable securities, which Peapod believes will be enough to fund its operating needs through next year's Q3. That wasn't enough to reverse the stock's recent fall.FULL STORY >>

Lustrous Cobalt Dazzles
By
Richard McCaffery (TMF Gibson)
-- After a blistering initial public offering November 5, shares of red-hot Cobalt Networks(Nasdaq: COBT) briefly climbed past the $140 mark Monday morning as investors decided that no price was too high for the three-year-old server appliance company. Cobalt sold 5 million shares at $22 apiece on Friday in an offering led by investment banking firm Goldman Sachs(NYSE: GS) and watched the share price soar nearly 500% in a few hours to close at $128 1/8. It's the latest in a string of Internet-enabling companies to go public and hardly touch the ground as investors scramble to back firms that develop hardware, software, and services that speed up anything Internet.FULL STORY >>

FOOL ON THE HILL An Investment OpinionRead This Before Shopping at priceline's WebHouse Club
By
Yi-Hsin Chang (TMF Puck)
-- I have the privilege of living in the city where priceline.com(Nasdaq: PCLN) recently launched its online WebHouse grocery store. The idea is simple: Like priceline's original and brilliant concept of allowing consumers to set their own prices for airline tickets via the Internet, WebHouse allows consumers to set their own prices for groceries. According to priceline, you can save up to 50%. Before you rush off to shop online at WebHouse Club, you should know that unlike many well-publicized online grocery stores, such as Webvan (which won the backing of Amazon.com CEO Jeff Bezos and lured away the head of Andersen Consulting to become its CEO), WebHouse DOES NOT deliver.FULL STORY >>

BREAKFAST WITH THE FOOLEnron Selling Portland General to Pacific Sierra
By
Richard McCaffery (TMF Gibson)
-- Natural gas, electricity, and communications provider Enron(NYSE: ENE) has reached an agreement to sell its recently purchased Portland General Electric utility division to Sierra Pacific Resources(NYSE: SRP) for $3.1 billion in cash and debt obligations. Portland General, which Enron bought two years ago for $3.1 billion, provides electricity for more than 714,000 customers. However, Enron has been focusing less on retail services and more on its energy wholesale services, commercial communications, and energy outsourcing businesses.FULL STORY >>